Other things equal, a decrease in aggregate demand will result in
A) an economic expansion.
B) lower unemployment and a higher equilibrium price level.
C) an economic contraction.
D) an increase in equilibrium real GDP and a decrease in the equilibrium level of prices.
E) increased economic welfare.

Question

Quizplus · Accepted Answer

A decrease in aggregate demand leads to a reduction in the output and consumer spending, leading to a contraction in the economy. This is because businesses will cut back on production and lay off workers due to lower demand, which will result in higher unemployment rates. The overall effect will be a reduction in economic activity, not expansion or increased economic welfare.

Other Things Equal, a Decrease in Aggregate Demand Will Result